Disruptive Models Based on Social Media
If the monetary benefits of social media are difficult to track with respect to branding, marketing campaigns, and customer support,models likedebt andequity crowdfundingandmirrored investing offer a somewhat clearer picture. These business models leverage social media by bringing relevant groups of people together. For instance, debt-based crowdfunding offers lenders and entrepreneurs a platform for collaboration. This allows for degrees of transparency and sophistication not commonly seen in status quo models. Furthermore, mirrored investing sites connect investors to one another or asset management experts to investors looking for someone to manage their portfolios. Again, transparency is heightened through a collaborative platform. There are two principal types of crowdfunding. The first is the traditional sites like Kickstarter, where users sponsor projects with the understanding that such projects do not have the goal of makingmoney. Instead, they pledge the capital in exchange for tangible rewards or one-of-a-kind experiences. They don’t see any of the upside if the company does well. The other type is for-profit sites. Debt-based crowdfunding allows a group of individuals or institutional lenders to lend funds to businesses in return for interest payments on top of capital repayments. This is also known as peer-to-peer lending or peer-to-business lending. Equity based crowdfunding allows individual investors to fund start-up companies and small businesses in return for equity. If the business succeeds, they see the upside of that reflected in the value of the equity. I. Debt or Equity Crowdfunding
These businesses are based on a social model, which allows individual investors from across the world to see investment opportunities beyond their immediate vicinity. This increases choice for the investor, but also raises the question of protecting unsophisticated investors from erroneously investing their capital into businesses. In public markets, regulations force disclosures, but this is not the case in private investments, where investors don’t necessarily understand the risk or value, let alone the sophisticated structures of capital such as voting rights and liquidation preferences. Crowdfunding has recently received the attention of financial regulators worldwide, and in the US it has been directly mentioned in the JOBS Act, allowing for a wider pool of smaller investors with fewer restrictions. In Europe, Seedrs Limited launched the first equity crowdfunding platform on 6 July 2012, with the approval of the UK Financial Services Authority (FSA). It was the first of its kind to receive regulatory approval anywhere in the world. Seed or venture capital is considered a high risk investment, however, these funding platforms can offer a very high level of transparency. The social platforms enable investors to engage in sophisticated question and answer exchanges regarding the companies. This allows them to make informed investment decisions that benefit from the crowd’s diligence as well.
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